The grant costs £94 million per year and while the Committee concluded the Welsh Government is right to use PDG, it was concerned by evidence from schools watchdog Estyn that only two thirds of Welsh schools were using the money effectively.

During evidence committee members were told that PDG is not used enough to support more able and talented eFSM pupils. This is despite the fact that the PDG should be used to improve the educational outcomes of every eFSM pupil, including helping them achieve the highest grades.

The Committee also heard that targeted funding such as the PDG is masking pressures on schools' budgets and is no longer considered an extra resource, but is part of core funding. The Committee has recommended that the Welsh Government keep the sufficiency of school budgets under review and also intends to undertake its own work in this area.

The Committee's inquiry looked at the impact of the PDG on attainment and the implications of changes to the way schools' performance is measured. The attainment gap between eFSM and other pupils narrowed following the introduction of PDG, but the Committee's inquiry highlighted that the gap was already narrowing before then.

PDG has also been extended to include pupils who were eligible for free schools meals in the past two years, but may not be anymore. But the Committee found that no extra funding had been provided to meet the new demand. Similarly, the PDG which is provided for Looked After Children can also be used on adopted children but no additional money is given for this. This means either education authorities are not targeting the money on adopted children, or are diluting PDG funding, effectively taking resources away from other Looked After Children. The Committee has called for a more strategic approach to the PDG for Looked After Children and adopted children.

"The link between deprivation and attainment is well established," said Lynne Neagle AM, Chair of the Children, Young People and Education Committee.

"Breaking this link has been a priority for the Welsh Government for many years.

"The Committee supports the use of the Pupil Development Grant to help narrow the gap between disadvantaged and deprived pupils and their peers but we believe much more needs to done to ensure this funding helps more able pupils from deprived backgrounds get the highest grades."

The Committee also examined the now discontinued Schools Challenge Cymru programme which provided extra funding and support for 39 underperforming schools in Wales.

The Welsh Government brought in Professor Mel Ainscow, who had developed a similar, successful scheme in Manchester, to head up the programme. But Welsh Government decided to end the programme after three years and before the results of a government-commissioned performance evaluation were known.

Critics of the decision said Schools Challenge Cymru ended too soon and that similar models used in other parts of the UK had been given more time to raise standards. The Welsh Government has said that the regional consortia, established in 2012, are now well placed to take over support for Wales' most underperforming schools as part of their functions for overall school improvement.

Lynne Neagle AM said:

"The Welsh Government established Schools Challenge Cymru in recognition that some of our schools need targeted and tailored challenge and support to improve and ensure pupils are given the best opportunity to do well.

"Results among the schools in Wales were mixed, but the Committee is concerned that those that made good progress risk losing momentum now that the programme has ended. The Welsh Government and the regional consortia must make sure this doesn't happen.

"It is also unclear to what extent the Welsh Government is learning lessons from the Schools Challenge Cymru programme.

The Committee makes 31 recommendations in its report, including:

The Welsh Government should regularly assess the scale of investment required for the Pupil Development Grant (PDG) in terms of value for money and opportunity cost. In particular, the Welsh Government should closely monitor on an ongoing basis the PDG's impact on the pupils it targets;

If the Welsh Government wants schools to use the PDG on pupils who have been eFSM at any point in the past two years, it should fund schools' PDG allocations on this basis, i.e. per pupil who has been eFSM at any point in the past two years, rather than expecting schools to support additional pupils from a grant allocation based on a one year snapshot of eFSM eligibility;

The Welsh Government should ensure that it funds its allocations of the Looked After Children and adopted children PDG to each regional consortia per Looked After Child and known adopted child in each region. Where the number of adopted children is not precisely known, a best estimate should be used; and,

The Welsh Government, in conjunction with the regional consortia, should engage with the key players involved in delivering Schools Challenge Cymru, including Professor Mel Ainscow, to discuss what lessons can be learnt from the programme and other school improvement initiatives and subsequently apply these more generally across all schools requiring improvement.